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Strategic trading in a dynamic noisy market

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  • Vayanos, Dimitri

Abstract

This paper studies a dynamic model of a nancial market with a strategic trader. In each period the strategic trader receives a privately observed endowment in the stock. He trades with competitive market makers to share risk. Noise traders are present in the market. After receiving a stock endowment, the strategic trader is shown to reduce his risk exposure either by selling at a decreasing rate over time, or by selling and then buying back some of the shares sold. When the time between trades is small, the strategic trader reveals the information regarding his endowment very quickly.

Suggested Citation

  • Vayanos, Dimitri, 2001. "Strategic trading in a dynamic noisy market," LSE Research Online Documents on Economics 447, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:447
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    References listed on IDEAS

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    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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